Recording and Interpreting the Disposal of Three long-Lived Assets (AP8-5)
During 2012, Jensen Company disposed of three different assets. On January 1, 2012, prior to their disposal, the accounts reflected the following:
Asset | Original Cost | Residual Value | Estimated Life | Accumulated Depreciation(straight line) |
Machine A | $21,000 | $3,000 | 8 years | $13,500 (6 years) |
Machine B | 41,000 | 4,000 | 10 years | 29,600(8 years) |
Machine C | 75,000 | 5,000 | 15 years | 56,000 (12 years) |
The machines were disposed of in the following ways:
a. Machine A: Sold on January 1, 2012. for $7,200 cash.
b. Machine B: Sold on December 31, 2012, for $8,500; received cash, $2,500, and a $6,000 interest-bearing (12 percent) note receivable due at the end of 12 months.
c. Machine C: On January 1, 2012, this machine suffered irreparable damage from an accident. On January 10, 2012, a salvage company removed the machine at no cost.
Required:
1. Give all journal entries related to the disposal of each machine in 2012.
2. Explain the accounting rationale for the way that you recorded each disposal.
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